NEW YORK >> Troubling readings on economic and jobs growth bode ill for Wall Street, quashing newfound hopes of a stock market recovery and raising questions about whether the nation has fully escaped the grips of recession. Market eyes
double-dip recession
By Amy Baldwin
Associated PressA spate of dismal economic findings this past week caught many analysts and investors by surprise, and sent the Dow Jones industrials tumbling more than 400 points, or nearly 5 percent, over Thursday and Friday. It was a huge let down on Wall Street following Monday's 447 point surge, which raised hopes the market had bottomed out.
The big worry now is that the economy, which had appeared to be strengthening, has instead fallen back into recession, called a double-dip.
"There are so many reasons to be worried," said Hugh Johnson, chief investment officer at First Albany Corp. "The numbers have been troubling."
After weeks of saying Wall Street was ignoring positive economic outlooks, analysts now say it looks like the market had it right all along.
"The one thing you don't do is ignore what the market is doing. The market is usually right. Forecasters are usually wrong, and they are wrong again," Johnson said.
The timing of the disappointing reports on the economy itself is disheartening as investors were starting to feel more confident about stocks and after more than 2 1/2 months of selling were interested in buying again. Not sure what to do, many investors opted for safety, cashing in profits from recent surges.
"It's a conflict. Investors are worried about the economy, but they don't want to miss the rally," said Richard A. Dickson, technical analyst for Hilliard Lyons in Louisville, Ky.
This past week's economic data included:
>> On Wednesday, the Commerce Department reported that the economy as measured by gross domestic product grew at an annual rate of 1.1 percent in the second quarter, a significantly slower pace than the revised 5 percent growth rate recorded in the first three months of 2002. The figure was also below the 2.2 percent growth rate analysts had expected, and suggested that consumer spending -- accounting for two-thirds of economic activity -- was frail.
>> The Labor Department report yesterday that the nation's unemployment rate held steady at 5.9 percent in July. The figure was in line with analysts' expectations, but the data also showed a paltry 6,000 new jobs were created and some economists believe joblessness could rise as high as 6.5 percent by the fall.
>> The Institute for Supply Management said its gauge of national business activity stood at 50.5 in July, short of the 55 reading analyst were anticipating and barely showing any growth.
>> The Commerce Department reported Thursday that construction spending fell 2.2 percent in June, missing analysts' expectations for a 0.3 percent rise.
"The economic numbers this week have been, on the general side, pretty poor," said Rafael Tamargo, director of equity research at Wilmington Trust. "It all increases the risk of a double-dip recession. We're not calling for that yet, but at the minimum these numbers mean this is going to be an extremely sluggish recovery."
Wall Street's best hope, according to market observers, is that the economy has hit a soft spot, rather than falling back into a real recession.
Johnson said, "The real question now is: Is this going to be a double-dip, or just a blip?"
Wall Street's major indexes ended the week mixed.
The Dow scratched out a weekly gain of 48.74, or 0.6 percent. The blue chip index closed yesterday down 193.49 at 8,313.13.
For the week, the Standard & Poor's 500 index gained 11.40, or 1.3 percent, despite falling 20.42 yesterday to close at 864.24.
But the Nasdaq composite index had a weekly loss of 14.20, or 1.1 percent. Yesterday, the Nasdaq fell 32.08 to 1,247.92.
And, the Russell 2000 index recorded a weekly loss of 5.81, or 1.5 percent. Yesterday, the Russell, which tracks smaller company stocks, fell 12.76 to 376.45.
The Wilshire Associates Equity Index, which represents the combined market value of all New York Stock Exchange, American Stock Exchange and Nasdaq issues, ended the week at $8.186 trillion, up $94.93 billion from the previous week. A year ago, the index was $11.242 trillion.